April 2, 2025 • 45 mins
Market volatility has soared, and investors are more bearish than they've been since 2008 – even more so than during COVID. But what if this extreme pessimism is actually a buying signal? Eric Nyquist of Howard Capital makes a compelling case that "bears sound smart, but they're usually wrong," highlighting how contrarian indicators often provide the clearest path forward during market uncertainty.
In this fascinating conversation, Eric breaks down Howard Capital's systematic approach to navigating turbulent markets. Their proprietary "Byline" and "Pivot Point" systems work together like a head coach and coordinator – the Byline determining overall market exposure based on trend analysis, while the Pivot Points fine-tune shorter-term adjustments. This rules-based methodology eliminates emotional decision-making, which Eric identifies as the primary reason most investors significantly underperform the market over time.
Drawing from Howard's impressive track record during previous market downturns, Eric explains how tactical management isn't about predicting market movements but responding systematically to what's actually happening. Their approach allowed them to navigate 2008 with less than 10% drawdowns and position clients optimally during the 2020 COVID crash. Most enlightening is Eric's perspective on risk itself – arguing that true risk isn't volatility but the erosion of purchasing power, making quality equities potentially less risky than bonds over the long term.
For advisors and investors struggling with client emotions during market turbulence, this episode provides invaluable insights into how disciplined, tactical approaches can deliver both peace of mind and superior long-term results. As Eric notes, "the value of a good advisor and money manager far outsees the cost," particularly when they save clients from making costly behavioral mistakes during times of market stress.
DISCLAIMER – PLEASE READ: This is a sponsored episode for which Lead-Lag Publishing, LLC has been paid a fee. Lead-Lag Publishing, LLC does not guarantee the accuracy or completeness of the information provided in the episode or make any representation as to its quality. All statements and expressions provided in this episode are the sole opinion of Howard Capital and Lead-Lag Publishing, LLC expressly disclaims any responsibility for action taken in connection with the information provided in the discussion. The content in this program is for informational purposes only. You should not construe any information or other material as investment, financial, tax, or other advice. The views expressed by the participants are solely their own. A participant may have taken or recommended any investment position discussed, but may close such position or alter its recommendation at any time without notice. Nothing contained in this program constitutes a solicitation, recommendation, endorsement, or offer to buy or sell any securities or other financial instruments in any jurisdiction. Please consult your own investment or financial advisor for advice related to all investment decisions.
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Episode Transcript
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Speaker 1 (00:00):
I truly believe that the value of a good advisor and
a money manager far outsees thecost, and that's all that should
matter.
I don't think investors shouldnecessarily penny pinch on that
when they probably wouldn't dothat if they needed heart
surgery.
They're probably not going tothe cheapest doctor for that,
probably not hiring the cheapestpersonal trainer.
(00:22):
If they want to get in shape,things of that sort, so yeah,
you want to get in shape, thingsof that sort, so yeah, you want
to look at your life savingsthe same way.
I believe that if an advisorand a money manager can help a
client increase their return byone, one and a half percent per
year versus them doingthemselves, save them even more
than that in the time effort andworry.
(00:44):
Save them even more than thatin the time effort and worry it
takes them managing that.
Or save them even more thanthat from making it, from
preventing them from makingthose classic behavioral
mistakes um, that we're all, uhsubject to making, um then
they're well worth it.
Speaker 2 (00:58):
If any of those three apply I think it's a good
conversation with uh, my friendEric Nyquist here.
This conversation is sponsoredby Howard Capital.
They are one of my clients Anumber of different interesting
active tactical strategies whichwe'll touch on.
And active tends to have a muchbetter time when there's
volatility.
It looks like, if you haven'tnoticed, volatility is picking
(01:19):
up meaningfully, as well as someof the more traditional
correlations, returning finallyto the what looked like pre-2020
era.
So, with all that said, my nameis Michael Guy, a publisher of
the Lead Laggard Board.
Joining me here is Mr EricNyquist of Howard Capital.
Eric, we did an interview lastmonth.
I think it was pretty wellreceived, but for those who
don't know about your background, introduce yourself.
(01:40):
Who are you?
What have you done throughoutyour career?
Where are you in Howard Capital?
Speaker 1 (01:43):
Yeah, absolutely Michael.
Yeah, no problem.
Happy Friday everybody.
Great day today.
My name is Eric Nyquist.
I'm the vice president of ETFsales and distribution here at
Howard Capital.
Been in the industry sincecoming out of college at Mercer.
Graduated there I felt like Iwas a little bit more of an
(02:05):
athlete student.
I had some great success inbaseball.
I had a decent opportunity togo play in the Blue Jays
organization before a couple ofsurgeries Put my career down,
but always been competitive innature, always wanted to figure
out how to win and to win inbusiness.
You know I just kind of foundmyself into this industry kind
(02:26):
of unconsciously due to, youknow, just some of my parents'
struggles through the mid-2000swith money.
You know 2008 definitely didn'thelp with that and they ended
up separating.
So you know, I just know thatmoney stress, money problems, is
a big reason for divorce inAmerica, nevertheless many other
mental problems.
(02:47):
So that drove me to be where Iam today and I try to work every
day to just help investors,advisors, navigate these markets
with confidence the best I can.
Let's talk about confidence.
Speaker 2 (03:03):
So much of why momentum happens is because of
confidence around recency biasthat the most recent past will
persist into the future.
Something then inevitablybreaks the confidence.
I'm curious to get the viewhere from what's going on the
last several weeks around what'sbroken the confidence of the
(03:25):
market.
I know everyone's arguing it'stariffs.
I think it's far more than that.
Speaker 1 (03:29):
Yeah well, I think it's a lot of.
It has to do with just generaluncertainty around what the
administration is doing rightnow, and they're doing a lot.
I mean, we saw it early on inTrump's first election in 2016,
where the markets were prettyvolatile for the first couple
months, ended up having a prettygood year.
I think we could see somethingsimilar, but I think it's
(03:52):
important for investors to pointout, or to hear, that a lot of
investors struggle with a herdmentality.
When news and information isubiquitous, now, so bad piece of
information comes out, peopletend to overreact and when too
many people start selling, theythemselves feel like it's the
(04:15):
right time to get on thebandwagon.
And an important technicalindicator to consider,
especially right now, isconsumer sentiment.
Investors are very bearish.
They're as bearish as they'vebeen since 2008,.
(04:39):
Not even COVID.
They are very bearish and youknow that could be several
reasons to that, but I wanteveryone listening to know that
oftentimes, from a technicalstandpoint, consumer sentiment
is a contrarian indicator forthem.
When it tends to bottom, thattypically tends to be the best
time to buy, and the marketseems to turn around in most
(05:00):
cases when sentiment goes down.
Vice versa, when sentiment iseuphoric, like we saw.
Let's just talk about 1999,2000,.
Near the top of the market iswhere you saw the largest
inflows during the tech bubbleboom in the 90s, followed by a
three-year downturn in themarket.
So I think it's important forinvestors not to necessarily hop
(05:25):
on the bandwagon and follow theherd.
Stick to a disciplined approachand I'll also throw this note
in you know bears.
They usually sound smart,michael, but they're usually
wrong.
And you can just look at thestock market since its inception
to see that there are temporarydips in the markets.
Most of them should beconsidered buying opportunities.
(05:48):
I believe it pays to be anoptimist, not only in investing
but in life in general.
That's true in life and true inthe stock market.
There are plenty of reasons toquestion today's bull market and
we are in a secular bull marketbull market and we are in a
secular bull market, don't getthat mistaken.
(06:10):
But if you're looking forreasons to sell, you'll rarely
have trouble finding it.
But oftentimes it's typically,you know, not the right move and
I encourage investors not tojust, you know, give up an
abandoned ship.
You know, yes, maybe weshouldn't be full on pedal to
the metal right now.
Our firm has taken a defensiveposture, but it's not like we're
(06:31):
all out of the market.
I think the market's justlooking for some clarity.
Businesses cannot remaincautious forever, and once they
have more clarity around thesetariffs aka April 2nd I think it
could be a signal of a bottom.
Then they're going to startmaking moves.
So instead of giving into fears, we should hope for the best
(06:54):
and have a process in place ifthings go wrong, and I believe
that we have one here at HowardGap.
Speaker 2 (07:00):
Can we talk about the defensive posture?
When you say defensive posture,I think a lot of people don't
really understand what the termdefensive means, or at least
they have different definitionsof what defensive means predict
where things are happening orwhat things are going to happen.
Speaker 1 (07:12):
Instead, we're identifying major trends in the
market and looking at real-timeleading indicators and
(07:33):
responding to what's actuallyhappening and adjusting exposure
accordingly.
Our process is very rules-based, it's systematic, it completely
removes emotions from theinvestment decision-making
process, and so when I saydefensive posture, I mean
typically, you know, when we'rein an offensive position.
If the market's in an uptrend,we're going to be let's call it
(07:55):
100% invested.
To trend to the downside, we'regoing to start taking layers
off the table according to oursignals, not an all-in or
all-out game.
History has shown that thatrarely works and again, the
worst case scenario hardly everhappens, and when it doesn't,
(08:18):
markets tend to revert back upto the upside and people who go
all out may have a tough timefinding their way back in.
And that happens over and over,and I'd say that that's
primarily the number one reasonwhy investors underperform their
market.
They let their emotions get thebest of them, they react off
their emotions and thosedecisions tend to hurt them far
(08:38):
more than they help them.
So, getting directly to yourquestion, defensive posture
means we're not all out, but wehave taken some equity exposure
off the table, kind of, like youknow, pressing the brakes a
little bit.
You know not full gas pedaldown, but we're not putting on
the emergency brake just yet.
Speaker 2 (08:55):
Talk to me about sort of the ranges with which you
take equity down, meaning, arewe talking a step function like
2.5%, then 5%, then 7.5%, or isit something else?
Speaker 1 (09:07):
Yeah, absolutely so.
The primary levels of exposureare dictated by our primary
trend following tool, the HCMbyline.
It's a proprietary algorithmthat is looking at the overall
breadth of the market and theoverall trends of the market.
So typically when we reduceexposure, to simply put Michael,
it's about a third at a time bythe byline.
(09:30):
We do have a bit of a shorterto intermediate term tool that
can take us a little bit quickerto 20% cash position, but the
overall macro exposure decisionsare dictated by the byline,
which is a more intermediate tolonger term trend indicator.
We're not trying to sidestepevery hic, a bear market or
(09:52):
recession that could cause somelasting pain, loss of time,
tough to get back from.
That's what we really want toavoid here.
(10:13):
So corrections like we're inright now um typically not going
to phase the byline on a hugelevel.
It's typically not going totrigger a massive sell signal
like that.
But it's based on the strengthof the signal, michael.
So some of our strategies cango out on the first signal up to
(10:35):
50% and then up to 100%, but itdepends on the strength of the
signal and typically ourstrategies don't go 100% out
unless there's a catastrophicevent going on, like 2008 was
the last time all our strategieswent completely to cash, but
that was a situation where youhad banks failing, massive risks
(10:55):
and recession going on.
So those things we don't wantto be involved in.
But even in times of COVID weweren't 100% out, but we did
take a decent amount of exposureoff the table to mitigate the
downside risk for our investors.
Speaker 2 (11:10):
So how that applies in practice to some of the
different funds that you offer.
Lay them out to the audience.
What are the differentstrategies?
How are they operating versuseach other?
Just give us some context there.
Yeah, certainly.
How are they operating versuseach other?
Just give us some context there.
Speaker 1 (11:23):
Yeah, certainly so.
Our firm has a full lineup ofportfolios, managed accounts
that advisors could have accessto more investors for as little
as $25,000.
We have four proprietary mutualfunds.
All have separate systems,separate agendas, but with the
(11:45):
ultimate goal of achievingrisk-adjusted returns.
In alpha, the three ETFs I'm incharge of, they use our
proprietary tools, theirtrend-following proprietary
technical tools, to try andenhance upside capture when the
market's doing well and try topreserve your capital in the
risk of a significant downturn.
In the risk of a significantdownturn, two of our ETFs track
(12:07):
the companies within the NASDAQ100 and S&P 500.
And our third is more of ahigh-octane, large-cap ETF that
can gain up to 200% equityexposure.
We also have a.
You know our tactical component, michael, as you well know.
But for your audience, you knowdifference between active and
(12:28):
tactical.
Tactical is a little bit moreabout increasing or decreasing
general equity exposure in yourstrategies versus active, bit
more of stock selection havingto do with that.
So you know we're not trying topredict which stock is going to
rise or fall.
We use a relative strengthalgorithm that's looking at
(12:50):
three separate measures ofrelative strength and the one
showing the highest amount ofrelative strength.
That's where we're going tofocus our portfolios with that.
Speaker 2 (12:59):
You find that when markets get volatile, there's
more and more interest aroundactive strategies like what
Howard Capital offers.
Speaker 1 (13:06):
Well, I would say so, Michael, as long as they have a
process.
I would argue this, you know,because I definitely think that
there's a big reason why a lotof people like to use strategic
you know low cost index fundsand I'm a fan of them.
Strategic, you know low costindex funds and I'm a fan of
(13:27):
them.
I don't think it should be allin one and all in the other,
because strategic funds, if youhave a client, if you're an
investor who's disciplined, whoknows over time that the S&P is
going to rise history provesthat then you could just dollar
cost average into that andyou'll do better than most
active managers.
And you could just dollar costaverage into that and you'll do
better than most active managers, especially those that are just
really trying to guess and useintuition more so.
(13:51):
But having the benefits of anactive or tactical money manager
in my opinion, michael, is moreat least.
This is why Howard Capital hasdeveloped the byline and its
rules based process is becauseoftentimes investors struggle
with discipline and if they saythey don't, they're probably you
know, probably lying to you,probably full of it.
(14:13):
So, basically, you know,because history shows and you
look back at the dot-com bubble,you look at 2008,.
The most outflows in 2008happened near the bottom.
Most of the inflows themajority happened in 1999 to
2000.
So they struggle withdiscipline and having a process
(14:33):
in place that removes emotionaldecision making from the
equation and just responds towhat the actual market data is
telling us.
Having that approach can helpadvisors and investors stay the
course and on track towardstheir long term objectives, and
oftentimes way more oftentimesthan not.
If they stay invested, stayaccording to their plan, keep
(14:56):
dollar cost averaging, they'regoing to do much better over
time than just trying to timethe market.
That has proven to be a loser'sgame.
About 75% of day traders end uplosing money.
So I highly encourage investorsnot to go that route, unless
it's just some play money on theside.
But you know this is not a gameto play, especially in this
(15:19):
market.
This isn't 2000, where you canbuy meme stocks that are just
soaring through the roof.
No, you got to focus on highquality businesses and be
selective in this type of marketenvironment, especially until
we get some more clarity.
Speaker 2 (15:32):
All right, that's actually a good direction to go,
because I think, just in thesame way people have different
definitions around defensive,they also have different
definitions around quality, highquality, right when it comes to
companies.
So talk to me about how youknow what would drive the
process there in terms ofdetermining what stocks to
position into.
Speaker 1 (15:47):
Yeah, so you mentioned stocks.
So yeah, high qualityinvestments let's talk about.
I think in today's market itmight be more suitable for
investors necessarily to go intoan etf that's already
diversified than a single stock.
Because here's the deal whilewhile our company and myself
(16:08):
recognize the importance offundamentals I partner with
fundamental managers, moneymanagers and wholesalers all the
time we recognize theimportance of fundamentals but
also recognize that even greatbusinesses can see severe price
drawdowns in bad markets.
So my point being, if investorsare getting emotional, let's
(16:32):
just go into an ETF that willhelp mitigate some of that
downturn.
But I like to focus, you know,I mean, michael, I'm a big fan
of you know large and mega capcompanies because I mean, for
multiple reasons, I know a lotof people saying they're
overvalued.
(16:52):
I don't necessarily see thatgoing away, I would like to see
it broadening out of somewhat.
But you're going into provenbusinesses that have tremendous
balance sheets and cash flowreserves, that have already been
proving their earnings, growingtheir dividends, have a
tremendous moat in competitiveadvantage, and that's just kind
(17:13):
of the nature of capitalism.
Not only that, you know,globalization has flipped
businesses on its head.
We don't believe in just goinginternational just to go
international sake, to diversifyacross the board.
Oftentimes globalization is.
Oftentimes these biggest,strongest businesses are doing
business all over the world.
I mean, think about it there'sa Starbucks everywhere in the
(17:35):
world.
Apple sells everywhere in theworld.
Nike is selling everywhere inthe world.
So to us it just makes sense toavoid to own those high quality
, large and mega cap you knowtop of the line innovative
businesses, because they're alltypically industry leaders as
well and getting and they haveinternational exposure without
(17:56):
direct international risks suchas currency risks, geopolitical
conflicts, etc.
So I would stress ETFs morethan individual stocks right now
.
I stress, to tell you topredict which stock might lead
the run, I'll give you oneNetflix.
(18:17):
I think that's a powerful onethat's been holding up and that
might be a leader coming out inthe next market runoff.
Speaker 2 (18:24):
In general, I think passive makes sense towards the
end of a bear market.
Active tends to make more sense, or relative basis towards the
end of a bull market, because Ithink one of the big appeals of
active obviously is that riskmanagement side.
It's not that you really, Iwould argue, actively managing
return, you're actively managingrisk, which means you need to
be in an environment wherethere's risk to begin with.
(18:45):
As you talk to advisors, highnetwork investors, what do you
typically see in terms of thosethat are looking for more active
strategies?
Meaning, do they tend to be ofthe mindset that everything in
their portfolio should be activeright, because they're worried
about volatility, especially inperiods like this?
Or, yeah, it was more of a sortof a blend mindset?
Speaker 1 (19:07):
Yeah, I'm going to always lean towards the blend.
Michael, I don't believe ourstrategy is the end-all be-all.
I don't believe any strategy is.
Again, I'll go back to themajority.
Of active managers typicallyunderperform the S&P.
When I see people leaningtowards active management is
when I see investors thatstruggle with discipline, which
(19:29):
most do so.
Hiring someone that's looking atthe markets that may, you know,
be more, that is more involvedand has a team around them that
you're hiring is that answer andcan help.
You know, I oftentimes thinkadvisors they get paid.
You know most of how they getpaid is oftentimes being a
(19:50):
behavioral coach, notnecessarily picking the best
fund.
A behavioral coach, notnecessarily picking the best
fund.
I don't believe that thedifference between investors
underperforming the marketversus outperforming the market
is them buying a specific fund,a specific five-star fund,
versus a three-star fund.
I believe the ultimate way thatthey do that is not letting
(20:10):
their emotions get the best ofthem.
I truly believe that the valueof a good advisor and a money
manager far outsees the cost,and that's all that should
matter.
I don't think investors shouldnecessarily penny pinch on that
when they probably wouldn't dothat if they needed heart
surgery.
They're probably not going tothe cheapest doctor for that,
(20:33):
probably not hiring the cheapestpersonal trainer if they want
to get in shape, things of thatsort.
So, yeah, you want to look atyour life savings the same way
one and a half percent per yearversus them doing themselves.
Save them even more than thatin the time, effort and worry it
(20:57):
takes them managing that, orsave them even more than that
from making it, from preventingthem from making those classic
behavioral mistakes that we'reall subject to making.
Then they're well worth it.
Speaker 2 (21:11):
if any of those three apply.
Let's talk about behavioralfinance and behavioral mistakes.
We know from prospect theorythat people feel the pain of a
loss of a dollar twice as muchas the gain of a dollar, which
is why when losses start tomount, people get kind of crazy.
Despite all the longer-termcharts to your point about,
things ultimately hopefully comeback, unless you're in a lost
(21:32):
decade, which might not looklike they're kind of in.
But how do you deal withemotion?
And one thing is to say thathypothetically.
But when people are calling youup and saying, listen, what are
we doing here?
Hard to get them to be rational.
Speaker 1 (21:48):
Yeah Well, I think that is.
That's a great point, michael,and you brought up the last
decade.
I'll have you know that'sanother reason for potentially
(22:08):
hiring an active or tacticalmoney manager.
I mean, our longest runningstrategy during the lost decade
was up over 100% through 2000 to2010.
I think the S&P was only upabout seven during that time.
Back to the behavior financequestion.
You're right, loss aversion ismuch more powerful than getting
the same amount in gain.
That's true in investing,that's true in most of our lives
how we deal with that and how.
This is why advisors you knowour longest advisors that have
(22:28):
been working with us.
You know oftentimes, when I askthem why they use Howard
Capital, they're saying you knowmuch higher retention rate with
their clients because they knowwe're at least doing something
about it when, when things canget really bad, go awry.
(22:57):
We're human beings, we're goingto be emotional, but we want to
have a process that removes ourego from the investment
equation, because it's typicallygoing to hurt us far more than
it helps us.
We know that.
And also why we use algorithmsto try and combat the speed of
these modern markets because thespeed of these markets is
leaving investors wondering howthey can compete and even
rationalize decisions in realtime based on a market like this
(23:19):
.
So we want to remove emotionscompletely and let the math and
probabilities and real-timemarket data show us what to do.
So, getting back to theretention rate, advisors love us
using us because they haveclear answers for their clients.
Clients call us up.
They say why do you take thistrade?
It's because, michael, it'sbecause the math put us there.
(23:40):
Will the trade work?
I don't know, and neither doyou.
But we know that math gives usan edge.
We know that the probabilitiesare in our favor.
That's what we want to trademath and probabilities.
So that's really the answer isthat you know the trend's down.
We're dictating caution.
We are hired not to deviatefrom our system.
(24:01):
We're not hired based on howVance Howard and I think.
We are hired to trade a systemand to trade a rule-based
process with discipline, and letthe math and probabilities
dictate what we do so and weshow it every week on our
WealthWatch newsletter that anyof your clients can sign up for
(24:22):
by going to howardcmcom, clickon the resources tab and you can
sign up.
You'll see our weeklyWealthWatch newsletter, which
will you know, oftentimes we'regoing to show you the byline as
well as you know kind of whatworks, you know what is building
up in the markets, like whatthe data is showing us now in
(24:42):
the present moment.
Speaker 2 (24:43):
So you mentioned there's been a more defensive
posture.
Let's talk about what takes thedefensive posture out, meaning
what makes you get moreoffensive.
Speaker 1 (24:51):
Yeah, it goes back to the trends, michael, the
overall trends of the market.
If the trend is up, we're goingto increase exposure.
If the trend is down, we'regoing to decrease exposure in
tranches not an all in or allout game.
So when the market turns, youknow we've got a shorter term
indicator we call the HCM pivotpoint system which can help us
(25:14):
bring us in.
You know, when the market isshowing, you know signs of
rallying, falling, a pullback,but then the confirmation
signals of the byline.
We need to establish trend toput the gas pedal back on and
get 100% back in.
The pivot points can help uspop in and out a little bit
quicker to capture some of thosegains.
(25:35):
But the byline really dictateshow much exposure we get if
we're going 100% or even over100% if this signal is strong
enough.
So to us it's all aboutfollowing the trends of the
market and if we can catch themajority of the uptrend and
avoid the majority of asignificant downtrend and we can
do that systematically throughenough market cycles, we can
(25:58):
show significant outperformanceover the long term and our
longest running portfolio provesthat.
And that's how investors andadvisors should, that's how
investors should judge theiradvisors and that's how advisors
and investors should judge us.
It should never be about theshorter term, like the news
media always wants to dictate.
(26:18):
The shorter term.
What can we expect in the nextweek?
Oh my gosh, markets are down asmuch as they were on March 10th
.
Who cares?
I've never heard anybody andmaybe you have, michael, let me
know.
I have yet to hear anybody saythat they've gotten rich
watching CNBC or Kramer.
Not to doubt Kramer, I thinkhe's funny.
(26:38):
But to take that stuffseriously and be always
ingrained with that stuff is arecipe for disaster.
Speaker 2 (26:45):
And that's a fact.
That's a good quote.
No one has ever gotten richwatching CNBC, not that I've
heard of Michael.
Maybe you have, yeah, no.
Well, I've heard of Michael.
Maybe you have, yeah, no, I.
Well.
I think that's a fair statementbecause, in fairness, if it's
on.
Cbc.
It's already probably priced inlike that puts missed by a lot
of people.
I mean news is not, but itdoesn't mean prices already
moves on not to mention Michael.
Speaker 1 (27:07):
I mean some of your guys watching might watch some
of their segments on YouTube.
I just I laughed at one of mycolleagues yesterday.
You know not to get intospecific, but they're always
like showing these crazyheadlines on these YouTubes with
like short little quotes fromthese guys talking I don't even
know what they're saying,they're talking gibberish.
It's almost like they're tryingto sound smart.
(27:27):
Um, and the audience?
I don't know what the audienceis doing.
I'm like do you guys understandwhat they're talking about?
Again, it goes back to my point.
Bears are usually bears, soundsmart, sound smart, but they're
usually wrong.
In fact, if people are fans ofyou know, I again, I'm more of a
natural optimist.
(27:47):
If you're a CNBC watcher, Ilike Tom Lee, he's my favorite
person on CNBC.
You can tell by listening tohim that he's, you know, speaks
with honesty and conviction withwhat he's saying and he's a
natural bull.
And I think, if you know you'rea pessimist in life, you're
probably unhappy and you don'twant to stay like that.
(28:08):
Guys.
You want to be optimistic, youwant to remain bullish Because,
just look at it, for the longterm, this thing will turn
around.
We may have another leg downhere, but eventually it's going
to turn and if we do fall intosomething eventually which is
inevitable we will fall intoanother recession.
I'm not trying to predict it,but we've got the Fed.
(28:31):
You know who's going to come inand they're going to
quantitative ease and thenthings are going to be reaching
all time highs again.
I can say that with 100 percentcertainty.
Speaker 2 (28:42):
So it's a question of the, the when with that and
that's always the challenge andthen, obviously, having the
patience for that, let's talkabout some of the specifics
around timeframes here.
So a lot of ways to be tactilethe short-term, intermediate,
long-term.
How do you define timeframes interms of the pivot points and
(29:03):
everything that Howard Capitaldoes?
Speaker 1 (29:04):
Yeah, absolutely so.
The pivot points are usedwithin 20% of our funds, that's
mutual funds and ETFs.
That more works on a shorter tointermediate term basis.
It's not we're not trying toJ-trade here or make thousands
of trades with this, maybe oneor two a month max.
It's going to obviously dependon the volatility of the market
(29:28):
and the action that's going on.
But pivot point's a little bitmore short to intermediate term
use with 20% of the funds.
The other 80% is kind ofdictated by the HCM byline,
which is a longer term trendindicator.
For you guys listening, you knowit's again, it's proprietary
but it's, you know.
Look at the 200 day movingaverage as an example.
(29:49):
That's that's kind of a gaugeon a technical level, a longer
term trend indicator to themarket.
So that's kind of the timeframes we're looking at.
We're not trying to day tradeover here and we're not trying
to again time the market.
I know you kind of mentionedthere the when we get away from
(30:10):
predictions.
I can give your audience someinformation based on things that
I've read personally, but again, it's the cost of what they're
paying for it.
Um, so, um, I'm not trying topredict and um, and I don't
think people necessarily shouldeither.
And that goes back to why youknow hiring an advisor um is
(30:33):
often, you know, often wellworth the cost.
You're better off focusing onyour business, increasing your
income, being around your familyand trying to live this life
for the short period of timethat we're here and not getting
concerned about the day-to-dayactivity with this.
(30:53):
But people like that, they knowwe're doing something about it,
not based on necessarilyday-to-day but, yes, to answer
your question, direct pivot's alittle bit more shorter term.
You know we like to look at kindof weekly charts for that sort
of thing and the byline you knowbeing a little bit longer in
(31:17):
cater.
I like to put it this way,michael, you know, like the
byline, it defines the bigpicture.
The pivot points fine-tune thespecific actions taken within
the strategy.
Think of it your audience canthink of it like a football team
.
The byline is the head coach.
It decides the game plan andwhether the team should focus on
(31:38):
offense or defense.
The pivot points acts more likethe offensive or defensive
coordinator, helping identifyshorter term adjustments and
strategies within the overallgame plan.
So together, you know, webelieve it creates a flexible
yet disciplined approach tomarket participation, trying to
(31:59):
optimize participation whilehaving that discipline risk
buffer in case things get bad.
I also like to mention this thebyline and the pivots are kind
of like a belt and suspenders.
Michael, there are twoprotocols in place to keep your
pants from falling down.
Speaker 2 (32:18):
You're a fan of the analogies.
I love analogies like that andI don't need the image of pants
falling down.
I don't know if the audiencedoes as well, but I think it's a
good way to think about it.
You mentioned sort of thelonger term playbook, of the
longer term playbook.
Talk to me about sort of thelast, maybe major bear market as
far as how our capital managedthrough it.
(32:40):
I mean, I think it'sinstructive because nobody knows
what tomorrow brings.
It could be certainly a bullmarket that continues.
I mean this could just be toyour point, just kind of nothing
, burger, and everyone forgetsabout it in a few months.
But yeah, every bear marketalso starts off with the same
feeling, right?
So any kind of war stories thatyou can even point to around
how our capital is done?
Speaker 1 (33:00):
Jason Richards yeah, absolutely, I mean again.
We can go all the way back toour inception in 1999.
I accepted, obviously, justbefore the dot com bubble, so
that's that great timing there.
But with the help of the byline, our firm was able to
navigate through that prettywell.
2008, we did extremely well.
(33:20):
We were down less than 10%across all our strategies.
Again, through the last decade,our longest running strategy
was up over 100%, compared tothe S&P being up roughly 7%, 8%,
getting to the latest into thisdecade, 2020, we navigated
(33:44):
extremely well.
We reduced exposure.
We were out about 60% to 80% inour strategies and then we got
fully back in the market.
The market bottomed, I believe,on March 23rd.
Our strategies were all fullyback invested by April 14th.
I believe that was around thesame time frame that the
Imperial College over in Londonwas telling us everybody was
going to die and there was a lotof fear.
(34:06):
I could tell just by being onthe phone with advisors, but we
ended up that year up anywherebetween 30 to 50% in our
strategies.
2022 was the worst year HowardCapital's had in our history,
being primarily a tacticalmanager that specializes in
trend analysis when there's noreal trend, like there was in
(34:28):
2022, a manager like us couldstruggle.
But that pivot point system Iwas talking to you about,
michael, the little bit shorterterm tool, was an evolution in
our trading process due to whatwe experienced in 2022.
And our portfolio manager, ceoVince Howard, as competitive as
he is, you know, and as humbleas he is, he knows, you know, he
(34:52):
never wants something like thatto happen again.
That's not what we get hired todo.
And, um, and he's not dogmaticfrom the standpoint of saying,
oh, we've had these greatequations, these algorithms,
going back, you know, 20 years.
Why change anything?
Nope, as markets evolved,michael, so are we.
Um, so the pivot points willallow us to take advantage of
(35:13):
some of those intermediate termrun-ups.
At the same time, when marketsstart to deteriorate, the pivots
can help us exit out about 20%cash within our strategies to
help mitigate these sharpdeclines before they turn into
full-blown sellouts.
Our ETFs also our ETFs used toonly be able to go to cash
(35:35):
equivalents, short-termtreasuries.
That wasn't really helping usin 2022 due to the Fed hiking
rates and we also got whipsaweda couple of times, and that's
going to happen.
And you mentioned the pantsanalogy.
Going back to active tacticalmanagers audience.
I'm not saying that we're goingto outperform the market every
single year.
I'm saying we've got a processin place that removes behavior
(35:59):
from the decision making, whichbehavioral finance shows.
That's the number one reasonsinvestors underperform the
market.
Every active manager is goingto get caught with their pants
down every once in a whilecaught with their pants down
every once in a while.
But the important part is thatwe get back up and we respond
accordingly and we keep movingforward without overblown
(36:20):
changes to our process.
We didn't really change ourprocess.
I would not say that More of anevolution and enhancement.
I think a change differencebetween a change and an
enhancement to me, michael, isan enhancement would be like
let's just say your favoritesteak is medium or filet mignon.
An enhancement would be I addyour favorite steak seasoning to
it Full out.
Change would be, let's say oh,you know, maybe we should go
(36:43):
with a ribeye.
Let's try and cook it mediumthis time.
That's not what we're doing.
So I think, going forward,investors will see favorable
results.
In the first year of the pivotsIn 2024, our ETFs first full
year of the pivots in 2024, ourETFs outperformed.
Lgh outperformed the S&P byabout 250 basis points.
(37:04):
Qqh outperformed the NASDAQ byalmost 10%, so pretty good, and
it allows us to take advantageof a little bit intermediate
term volatility.
I mean that yen carry trade wasactually uh ended up being a
really good trade force uhmemories on that.
Speaker 2 (37:24):
That was a fun day for me as somebody who uh has
been on that kick for some time.
Speaker 1 (37:29):
yeah, that was one market, michael and'll also add
2022, there was nowhere to hide.
Most strategies were down.
There were some managers thatperformed very well.
Kudos to them.
So, overall, we haven't seen amarket like that in 40, 50 years
, not since our portfoliomanager, vance Howard, has
(37:51):
started managing money.
So we've seen something likethat.
We're going to perform betterif something like that occurs
again and that's kind of thebeauty of running a quant
strategy too, michael is that wehave the capability of of
taking the data, taking the datain our strategies and running
it across vast data sets inorder to optimize our, you know,
and validate the effectivenessof our signals and optimize the
(38:12):
parameters if necessary.
So it's still new.
We're still getting better andbetter.
That's always what we'reseeking to do for our clients.
Speaker 2 (38:19):
Let's talk about the kind of education you put out
there, because you know whatyou're doing as a firm is not
typical in the management sideof the industry.
It takes a certain degree ofcommunication and understanding.
Some people might be skeptical,right.
So talk about what you do toget the word out.
Speaker 1 (38:36):
What we do to get the word out.
I mean, it's kind of why I'm onthe podcast with you right now.
But I go back to I don't wantto compete with fundamental
managers.
We seek to complement theirstrategies.
Most advisors and portfoliomanagers.
They use Howard Capital toenhance their existing
allocations rather than makingwholesale changes.
(38:58):
Our strategy seeks to workwithin their existing framework
to help improve client outcomes.
It provides kind of an activetactical risk control mechanism
to navigate these extreme marketconditions when trends dictate
caution.
So again, while we recognizethe importance of fundamentals,
(39:21):
we also believe thatcomplementing a more fundamental
approach with a morequantitative tactical approach
can create a more comprehensiveapproach to investing in a more
full spectrum view of the market.
(39:41):
By balancing shorter termconviction with longer term
flexibility and I've runanalysis with this it makes for
a more adaptive portfolio and amore resilient and less
vulnerable portfolio throughmarket cycles.
So you know not saying we'rethe perfect.
(40:02):
A lot of advisors like to usethis as an arrow in their quiver
and if their clients,especially those nearing or in
retirement, are either concernedone about a 40, 50% drawdown in
their account which couldgreatly affect sequence of
withdrawals, we can help withthat.
We can be a solution therebecause our portfolios can
(40:24):
actually go to cash.
On the other side of thespectrum, a lot of folks are
worried about running out ofmoney in retirement and you know
longevity risk people areliving longer.
Right, I have this.
You know thing that I mentioned, michael.
You know the best thing,michael, for you and your family
is that you live a really longlife, but the worst thing for
(40:44):
your money is that you live areally long life.
So how do we address these twothings?
When it comes to market risksequence of withdrawal risk,
longevity risk Investors need tobe in equities.
It's the only proven vehicle tobe able to outpace inflation and
(41:06):
purchasing power risk, becausecost of living can double for
people in retirement.
If you're too conservative,that often brings up more risk.
I like to define money likethis, michael Money to me is not
currency, at least not in myindustry.
Money to me is purchasing power.
So when purchasing power isgetting eroded, that's risky.
(41:27):
But when it's in somethingthat's providing dividends
that's historically, you know,growing its earnings and far
outpacing inflation, that's notrisky.
So I kind of have it on theopposite spectrum.
I think equities are less riskythan bonds, to be honest with
you.
(41:50):
Eric.
For those who want to trackmore of the firm's thoughts,
learn more about the funds,where would you point them to?
Howardcmcom, howardcmcom.
Howardcmcom.
You can go, or HowardCMFundscom.
Either way, howardcm Funds willjust take you directly to the
Funding ETF website.
If you want to check out ourfirm in general, get some
materials on us, to learn aboutus, you can just go to
HowardCMcom.
(42:11):
You can find everything youneed there and you'll be able to
find our home office number.
Ask for Eric Nyquist.
I'm happy to talk to any of youabout anything that you might
be concerned on or any questionsyou have relating to our firm.
Speaker 2 (42:27):
Appreciate those that watched this episode of Lead
Lag Live, sponsored by HowardCapital.
Again, I'm a fan of the waythat the firm looks at markets,
because I'm a fan of active ingeneral and like everything else
, there are cycles where activeworks, cycles when passive works
, cycles when they don't.
I happen to think that we'reprobably in a good environment
for active on a go-forward basis, but of course I'm a little bit
biased.
Thank you, eric, I appreciateit.
Speaker 1 (42:50):
Of course, Michael have a great.
I truly believe that the value of a good advisor and
a money manager far outsees thecost, and that's all that should
matter.
I don't think investors shouldnecessarily penny pinch on that
when they probably wouldn't dothat if they needed heart
surgery.
They're probably not going tothe cheapest doctor for that,
probably not hiring the cheapestpersonal trainer.
(00:22):
If they want to get in shape,things of that sort, so yeah,
you want to get in shape, thingsof that sort, so yeah, you want
to look at your life savingsthe same way.
I believe that if an advisorand a money manager can help a
client increase their return byone, one and a half percent per
year versus them doingthemselves, save them even more
than that in the time effort andworry.
(00:44):
Save them even more than thatin the time effort and worry it
takes them managing that.
Or save them even more thanthat from making it, from
preventing them from makingthose classic behavioral
mistakes um, that we're all, uhsubject to making, um then
they're well worth it.
Speaker 2 (00:58):
If any of those three apply I think it's a good
conversation with uh, my friendEric Nyquist here.
This conversation is sponsoredby Howard Capital.
They are one of my clients Anumber of different interesting
active tactical strategies whichwe'll touch on.
And active tends to have a muchbetter time when there's
volatility.
It looks like, if you haven'tnoticed, volatility is picking
(01:19):
up meaningfully, as well as someof the more traditional
correlations, returning finallyto the what looked like pre-2020
era.
So, with all that said, my nameis Michael Guy, a publisher of
the Lead Laggard Board.
Joining me here is Mr EricNyquist of Howard Capital.
Eric, we did an interview lastmonth.
I think it was pretty wellreceived, but for those who
don't know about your background, introduce yourself.
(01:40):
Who are you?
What have you done throughoutyour career?
Where are you in Howard Capital?
Speaker 1 (01:43):
Yeah, absolutely Michael.
Yeah, no problem.
Happy Friday everybody.
Great day today.
My name is Eric Nyquist.
I'm the vice president of ETFsales and distribution here at
Howard Capital.
Been in the industry sincecoming out of college at Mercer.
Graduated there I felt like Iwas a little bit more of an
(02:05):
athlete student.
I had some great success inbaseball.
I had a decent opportunity togo play in the Blue Jays
organization before a couple ofsurgeries Put my career down,
but always been competitive innature, always wanted to figure
out how to win and to win inbusiness.
You know I just kind of foundmyself into this industry kind
(02:26):
of unconsciously due to, youknow, just some of my parents'
struggles through the mid-2000swith money.
You know 2008 definitely didn'thelp with that and they ended
up separating.
So you know, I just know thatmoney stress, money problems, is
a big reason for divorce inAmerica, nevertheless many other
mental problems.
(02:47):
So that drove me to be where Iam today and I try to work every
day to just help investors,advisors, navigate these markets
with confidence the best I can.
Let's talk about confidence.
Speaker 2 (03:03):
So much of why momentum happens is because of
confidence around recency biasthat the most recent past will
persist into the future.
Something then inevitablybreaks the confidence.
I'm curious to get the viewhere from what's going on the
last several weeks around what'sbroken the confidence of the
(03:25):
market.
I know everyone's arguing it'stariffs.
I think it's far more than that.
Speaker 1 (03:29):
Yeah well, I think it's a lot of.
It has to do with just generaluncertainty around what the
administration is doing rightnow, and they're doing a lot.
I mean, we saw it early on inTrump's first election in 2016,
where the markets were prettyvolatile for the first couple
months, ended up having a prettygood year.
I think we could see somethingsimilar, but I think it's
(03:52):
important for investors to pointout, or to hear, that a lot of
investors struggle with a herdmentality.
When news and information isubiquitous, now, so bad piece of
information comes out, peopletend to overreact and when too
many people start selling, theythemselves feel like it's the
(04:15):
right time to get on thebandwagon.
And an important technicalindicator to consider,
especially right now, isconsumer sentiment.
Investors are very bearish.
They're as bearish as they'vebeen since 2008,.
(04:39):
Not even COVID.
They are very bearish and youknow that could be several
reasons to that, but I wanteveryone listening to know that
oftentimes, from a technicalstandpoint, consumer sentiment
is a contrarian indicator forthem.
When it tends to bottom, thattypically tends to be the best
time to buy, and the marketseems to turn around in most
(05:00):
cases when sentiment goes down.
Vice versa, when sentiment iseuphoric, like we saw.
Let's just talk about 1999,2000,.
Near the top of the market iswhere you saw the largest
inflows during the tech bubbleboom in the 90s, followed by a
three-year downturn in themarket.
So I think it's important forinvestors not to necessarily hop
(05:25):
on the bandwagon and follow theherd.
Stick to a disciplined approachand I'll also throw this note
in you know bears.
They usually sound smart,michael, but they're usually
wrong.
And you can just look at thestock market since its inception
to see that there are temporarydips in the markets.
Most of them should beconsidered buying opportunities.
(05:48):
I believe it pays to be anoptimist, not only in investing
but in life in general.
That's true in life and true inthe stock market.
There are plenty of reasons toquestion today's bull market and
we are in a secular bull marketbull market and we are in a
secular bull market, don't getthat mistaken.
(06:10):
But if you're looking forreasons to sell, you'll rarely
have trouble finding it.
But oftentimes it's typically,you know, not the right move and
I encourage investors not tojust, you know, give up an
abandoned ship.
You know, yes, maybe weshouldn't be full on pedal to
the metal right now.
Our firm has taken a defensiveposture, but it's not like we're
(06:31):
all out of the market.
I think the market's justlooking for some clarity.
Businesses cannot remaincautious forever, and once they
have more clarity around thesetariffs aka April 2nd I think it
could be a signal of a bottom.
Then they're going to startmaking moves.
So instead of giving into fears, we should hope for the best
(06:54):
and have a process in place ifthings go wrong, and I believe
that we have one here at HowardGap.
Speaker 2 (07:00):
Can we talk about the defensive posture?
When you say defensive posture,I think a lot of people don't
really understand what the termdefensive means, or at least
they have different definitionsof what defensive means predict
where things are happening orwhat things are going to happen.
Speaker 1 (07:12):
Instead, we're identifying major trends in the
market and looking at real-timeleading indicators and
(07:33):
responding to what's actuallyhappening and adjusting exposure
accordingly.
Our process is very rules-based, it's systematic, it completely
removes emotions from theinvestment decision-making
process, and so when I saydefensive posture, I mean
typically, you know, when we'rein an offensive position.
If the market's in an uptrend,we're going to be let's call it
(07:55):
100% invested.
To trend to the downside, we'regoing to start taking layers
off the table according to oursignals, not an all-in or
all-out game.
History has shown that thatrarely works and again, the
worst case scenario hardly everhappens, and when it doesn't,
(08:18):
markets tend to revert back upto the upside and people who go
all out may have a tough timefinding their way back in.
And that happens over and over,and I'd say that that's
primarily the number one reasonwhy investors underperform their
market.
They let their emotions get thebest of them, they react off
their emotions and thosedecisions tend to hurt them far
(08:38):
more than they help them.
So, getting directly to yourquestion, defensive posture
means we're not all out, but wehave taken some equity exposure
off the table, kind of, like youknow, pressing the brakes a
little bit.
You know not full gas pedaldown, but we're not putting on
the emergency brake just yet.
Speaker 2 (08:55):
Talk to me about sort of the ranges with which you
take equity down, meaning, arewe talking a step function like
2.5%, then 5%, then 7.5%, or isit something else?
Speaker 1 (09:07):
Yeah, absolutely so.
The primary levels of exposureare dictated by our primary
trend following tool, the HCMbyline.
It's a proprietary algorithmthat is looking at the overall
breadth of the market and theoverall trends of the market.
So typically when we reduceexposure, to simply put Michael,
it's about a third at a time bythe byline.
(09:30):
We do have a bit of a shorterto intermediate term tool that
can take us a little bit quickerto 20% cash position, but the
overall macro exposure decisionsare dictated by the byline,
which is a more intermediate tolonger term trend indicator.
We're not trying to sidestepevery hic, a bear market or
(09:52):
recession that could cause somelasting pain, loss of time,
tough to get back from.
That's what we really want toavoid here.
(10:13):
So corrections like we're inright now um typically not going
to phase the byline on a hugelevel.
It's typically not going totrigger a massive sell signal
like that.
But it's based on the strengthof the signal, michael.
So some of our strategies cango out on the first signal up to
(10:35):
50% and then up to 100%, but itdepends on the strength of the
signal and typically ourstrategies don't go 100% out
unless there's a catastrophicevent going on, like 2008 was
the last time all our strategieswent completely to cash, but
that was a situation where youhad banks failing, massive risks
(10:55):
and recession going on.
So those things we don't wantto be involved in.
But even in times of COVID weweren't 100% out, but we did
take a decent amount of exposureoff the table to mitigate the
downside risk for our investors.
Speaker 2 (11:10):
So how that applies in practice to some of the
different funds that you offer.
Lay them out to the audience.
What are the differentstrategies?
How are they operating versuseach other?
Just give us some context there.
Yeah, certainly.
How are they operating versuseach other?
Just give us some context there.
Speaker 1 (11:23):
Yeah, certainly so.
Our firm has a full lineup ofportfolios, managed accounts
that advisors could have accessto more investors for as little
as $25,000.
We have four proprietary mutualfunds.
All have separate systems,separate agendas, but with the
(11:45):
ultimate goal of achievingrisk-adjusted returns.
In alpha, the three ETFs I'm incharge of, they use our
proprietary tools, theirtrend-following proprietary
technical tools, to try andenhance upside capture when the
market's doing well and try topreserve your capital in the
risk of a significant downturn.
In the risk of a significantdownturn, two of our ETFs track
(12:07):
the companies within the NASDAQ100 and S&P 500.
And our third is more of ahigh-octane, large-cap ETF that
can gain up to 200% equityexposure.
We also have a.
You know our tactical component, michael, as you well know.
But for your audience, you knowdifference between active and
(12:28):
tactical.
Tactical is a little bit moreabout increasing or decreasing
general equity exposure in yourstrategies versus active, bit
more of stock selection havingto do with that.
So you know we're not trying topredict which stock is going to
rise or fall.
We use a relative strengthalgorithm that's looking at
(12:50):
three separate measures ofrelative strength and the one
showing the highest amount ofrelative strength.
That's where we're going tofocus our portfolios with that.
Speaker 2 (12:59):
You find that when markets get volatile, there's
more and more interest aroundactive strategies like what
Howard Capital offers.
Speaker 1 (13:06):
Well, I would say so, Michael, as long as they have a
process.
I would argue this, you know,because I definitely think that
there's a big reason why a lotof people like to use strategic
you know low cost index fundsand I'm a fan of them.
Strategic, you know low costindex funds and I'm a fan of
(13:27):
them.
I don't think it should be allin one and all in the other,
because strategic funds, if youhave a client, if you're an
investor who's disciplined, whoknows over time that the S&P is
going to rise history provesthat then you could just dollar
cost average into that andyou'll do better than most
active managers.
And you could just dollar costaverage into that and you'll do
better than most active managers, especially those that are just
really trying to guess and useintuition more so.
(13:51):
But having the benefits of anactive or tactical money manager
in my opinion, michael, is moreat least.
This is why Howard Capital hasdeveloped the byline and its
rules based process is becauseoftentimes investors struggle
with discipline and if they saythey don't, they're probably you
know, probably lying to you,probably full of it.
(14:13):
So, basically, you know,because history shows and you
look back at the dot-com bubble,you look at 2008,.
The most outflows in 2008happened near the bottom.
Most of the inflows themajority happened in 1999 to
2000.
So they struggle withdiscipline and having a process
(14:33):
in place that removes emotionaldecision making from the
equation and just responds towhat the actual market data is
telling us.
Having that approach can helpadvisors and investors stay the
course and on track towardstheir long term objectives, and
oftentimes way more oftentimesthan not.
If they stay invested, stayaccording to their plan, keep
(14:56):
dollar cost averaging, they'regoing to do much better over
time than just trying to timethe market.
That has proven to be a loser'sgame.
About 75% of day traders end uplosing money.
So I highly encourage investorsnot to go that route, unless
it's just some play money on theside.
But you know this is not a gameto play, especially in this
(15:19):
market.
This isn't 2000, where you canbuy meme stocks that are just
soaring through the roof.
No, you got to focus on highquality businesses and be
selective in this type of marketenvironment, especially until
we get some more clarity.
Speaker 2 (15:32):
All right, that's actually a good direction to go,
because I think, just in thesame way people have different
definitions around defensive,they also have different
definitions around quality, highquality, right when it comes to
companies.
So talk to me about how youknow what would drive the
process there in terms ofdetermining what stocks to
position into.
Speaker 1 (15:47):
Yeah, so you mentioned stocks.
So yeah, high qualityinvestments let's talk about.
I think in today's market itmight be more suitable for
investors necessarily to go intoan etf that's already
diversified than a single stock.
Because here's the deal whilewhile our company and myself
(16:08):
recognize the importance offundamentals I partner with
fundamental managers, moneymanagers and wholesalers all the
time we recognize theimportance of fundamentals but
also recognize that even greatbusinesses can see severe price
drawdowns in bad markets.
So my point being, if investorsare getting emotional, let's
(16:32):
just go into an ETF that willhelp mitigate some of that
downturn.
But I like to focus, you know,I mean, michael, I'm a big fan
of you know large and mega capcompanies because I mean, for
multiple reasons, I know a lotof people saying they're
overvalued.
(16:52):
I don't necessarily see thatgoing away, I would like to see
it broadening out of somewhat.
But you're going into provenbusinesses that have tremendous
balance sheets and cash flowreserves, that have already been
proving their earnings, growingtheir dividends, have a
tremendous moat in competitiveadvantage, and that's just kind
(17:13):
of the nature of capitalism.
Not only that, you know,globalization has flipped
businesses on its head.
We don't believe in just goinginternational just to go
international sake, to diversifyacross the board.
Oftentimes globalization is.
Oftentimes these biggest,strongest businesses are doing
business all over the world.
I mean, think about it there'sa Starbucks everywhere in the
(17:35):
world.
Apple sells everywhere in theworld.
Nike is selling everywhere inthe world.
So to us it just makes sense toavoid to own those high quality
, large and mega cap you knowtop of the line innovative
businesses, because they're alltypically industry leaders as
well and getting and they haveinternational exposure without
(17:56):
direct international risks suchas currency risks, geopolitical
conflicts, etc.
So I would stress ETFs morethan individual stocks right now
.
I stress, to tell you topredict which stock might lead
the run, I'll give you oneNetflix.
(18:17):
I think that's a powerful onethat's been holding up and that
might be a leader coming out inthe next market runoff.
Speaker 2 (18:24):
In general, I think passive makes sense towards the
end of a bear market.
Active tends to make more sense, or relative basis towards the
end of a bull market, because Ithink one of the big appeals of
active obviously is that riskmanagement side.
It's not that you really, Iwould argue, actively managing
return, you're actively managingrisk, which means you need to
be in an environment wherethere's risk to begin with.
(18:45):
As you talk to advisors, highnetwork investors, what do you
typically see in terms of thosethat are looking for more active
strategies?
Meaning, do they tend to be ofthe mindset that everything in
their portfolio should be activeright, because they're worried
about volatility, especially inperiods like this?
Or, yeah, it was more of a sortof a blend mindset?
Speaker 1 (19:07):
Yeah, I'm going to always lean towards the blend.
Michael, I don't believe ourstrategy is the end-all be-all.
I don't believe any strategy is.
Again, I'll go back to themajority.
Of active managers typicallyunderperform the S&P.
When I see people leaningtowards active management is
when I see investors thatstruggle with discipline, which
(19:29):
most do so.
Hiring someone that's looking atthe markets that may, you know,
be more, that is more involvedand has a team around them that
you're hiring is that answer andcan help.
You know, I oftentimes thinkadvisors they get paid.
You know most of how they getpaid is oftentimes being a
(19:50):
behavioral coach, notnecessarily picking the best
fund.
A behavioral coach, notnecessarily picking the best
fund.
I don't believe that thedifference between investors
underperforming the marketversus outperforming the market
is them buying a specific fund,a specific five-star fund,
versus a three-star fund.
I believe the ultimate way thatthey do that is not letting
(20:10):
their emotions get the best ofthem.
I truly believe that the valueof a good advisor and a money
manager far outsees the cost,and that's all that should
matter.
I don't think investors shouldnecessarily penny pinch on that
when they probably wouldn't dothat if they needed heart
surgery.
They're probably not going tothe cheapest doctor for that,
(20:33):
probably not hiring the cheapestpersonal trainer if they want
to get in shape, things of thatsort.
So, yeah, you want to look atyour life savings the same way
one and a half percent per yearversus them doing themselves.
Save them even more than thatin the time, effort and worry it
(20:57):
takes them managing that, orsave them even more than that
from making it, from preventingthem from making those classic
behavioral mistakes that we'reall subject to making.
Then they're well worth it.
Speaker 2 (21:11):
if any of those three apply.
Let's talk about behavioralfinance and behavioral mistakes.
We know from prospect theorythat people feel the pain of a
loss of a dollar twice as muchas the gain of a dollar, which
is why when losses start tomount, people get kind of crazy.
Despite all the longer-termcharts to your point about,
things ultimately hopefully comeback, unless you're in a lost
(21:32):
decade, which might not looklike they're kind of in.
But how do you deal withemotion?
And one thing is to say thathypothetically.
But when people are calling youup and saying, listen, what are
we doing here?
Hard to get them to be rational.
Speaker 1 (21:48):
Yeah Well, I think that is.
That's a great point, michael,and you brought up the last
decade.
I'll have you know that'sanother reason for potentially
(22:08):
hiring an active or tacticalmoney manager.
I mean, our longest runningstrategy during the lost decade
was up over 100% through 2000 to2010.
I think the S&P was only upabout seven during that time.
Back to the behavior financequestion.
You're right, loss aversion ismuch more powerful than getting
the same amount in gain.
That's true in investing,that's true in most of our lives
how we deal with that and how.
This is why advisors you knowour longest advisors that have
(22:28):
been working with us.
You know oftentimes, when I askthem why they use Howard
Capital, they're saying you knowmuch higher retention rate with
their clients because they knowwe're at least doing something
about it when, when things canget really bad, go awry.
(22:57):
We're human beings, we're goingto be emotional, but we want to
have a process that removes ourego from the investment
equation, because it's typicallygoing to hurt us far more than
it helps us.
We know that.
And also why we use algorithmsto try and combat the speed of
these modern markets because thespeed of these markets is
leaving investors wondering howthey can compete and even
rationalize decisions in realtime based on a market like this
(23:19):
.
So we want to remove emotionscompletely and let the math and
probabilities and real-timemarket data show us what to do.
So, getting back to theretention rate, advisors love us
using us because they haveclear answers for their clients.
Clients call us up.
They say why do you take thistrade?
It's because, michael, it'sbecause the math put us there.
(23:40):
Will the trade work?
I don't know, and neither doyou.
But we know that math gives usan edge.
We know that the probabilitiesare in our favor.
That's what we want to trademath and probabilities.
So that's really the answer isthat you know the trend's down.
We're dictating caution.
We are hired not to deviatefrom our system.
(24:01):
We're not hired based on howVance Howard and I think.
We are hired to trade a systemand to trade a rule-based
process with discipline, and letthe math and probabilities
dictate what we do so and weshow it every week on our
WealthWatch newsletter that anyof your clients can sign up for
(24:22):
by going to howardcmcom, clickon the resources tab and you can
sign up.
You'll see our weeklyWealthWatch newsletter, which
will you know, oftentimes we'regoing to show you the byline as
well as you know kind of whatworks, you know what is building
up in the markets, like whatthe data is showing us now in
(24:42):
the present moment.
Speaker 2 (24:43):
So you mentioned there's been a more defensive
posture.
Let's talk about what takes thedefensive posture out, meaning
what makes you get moreoffensive.
Speaker 1 (24:51):
Yeah, it goes back to the trends, michael, the
overall trends of the market.
If the trend is up, we're goingto increase exposure.
If the trend is down, we'regoing to decrease exposure in
tranches not an all in or allout game.
So when the market turns, youknow we've got a shorter term
indicator we call the HCM pivotpoint system which can help us
(25:14):
bring us in.
You know, when the market isshowing, you know signs of
rallying, falling, a pullback,but then the confirmation
signals of the byline.
We need to establish trend toput the gas pedal back on and
get 100% back in.
The pivot points can help uspop in and out a little bit
quicker to capture some of thosegains.
(25:35):
But the byline really dictateshow much exposure we get if
we're going 100% or even over100% if this signal is strong
enough.
So to us it's all aboutfollowing the trends of the
market and if we can catch themajority of the uptrend and
avoid the majority of asignificant downtrend and we can
do that systematically throughenough market cycles, we can
(25:58):
show significant outperformanceover the long term and our
longest running portfolio provesthat.
And that's how investors andadvisors should, that's how
investors should judge theiradvisors and that's how advisors
and investors should judge us.
It should never be about theshorter term, like the news
media always wants to dictate.
(26:18):
The shorter term.
What can we expect in the nextweek?
Oh my gosh, markets are down asmuch as they were on March 10th
.
Who cares?
I've never heard anybody andmaybe you have, michael, let me
know.
I have yet to hear anybody saythat they've gotten rich
watching CNBC or Kramer.
Not to doubt Kramer, I thinkhe's funny.
(26:38):
But to take that stuffseriously and be always
ingrained with that stuff is arecipe for disaster.
Speaker 2 (26:45):
And that's a fact.
That's a good quote.
No one has ever gotten richwatching CNBC, not that I've
heard of Michael.
Maybe you have, yeah, no.
Well, I've heard of Michael.
Maybe you have, yeah, no, I.
Well.
I think that's a fair statementbecause, in fairness, if it's
on.
Cbc.
It's already probably priced inlike that puts missed by a lot
of people.
I mean news is not, but itdoesn't mean prices already
moves on not to mention Michael.
Speaker 1 (27:07):
I mean some of your guys watching might watch some
of their segments on YouTube.
I just I laughed at one of mycolleagues yesterday.
You know not to get intospecific, but they're always
like showing these crazyheadlines on these YouTubes with
like short little quotes fromthese guys talking I don't even
know what they're saying,they're talking gibberish.
It's almost like they're tryingto sound smart.
(27:27):
Um, and the audience?
I don't know what the audienceis doing.
I'm like do you guys understandwhat they're talking about?
Again, it goes back to my point.
Bears are usually bears, soundsmart, sound smart, but they're
usually wrong.
In fact, if people are fans ofyou know, I again, I'm more of a
natural optimist.
(27:47):
If you're a CNBC watcher, Ilike Tom Lee, he's my favorite
person on CNBC.
You can tell by listening tohim that he's, you know, speaks
with honesty and conviction withwhat he's saying and he's a
natural bull.
And I think, if you know you'rea pessimist in life, you're
probably unhappy and you don'twant to stay like that.
(28:08):
Guys.
You want to be optimistic, youwant to remain bullish Because,
just look at it, for the longterm, this thing will turn
around.
We may have another leg downhere, but eventually it's going
to turn and if we do fall intosomething eventually which is
inevitable we will fall intoanother recession.
I'm not trying to predict it,but we've got the Fed.
(28:31):
You know who's going to come inand they're going to
quantitative ease and thenthings are going to be reaching
all time highs again.
I can say that with 100 percentcertainty.
Speaker 2 (28:42):
So it's a question of the, the when with that and
that's always the challenge andthen, obviously, having the
patience for that, let's talkabout some of the specifics
around timeframes here.
So a lot of ways to be tactilethe short-term, intermediate,
long-term.
How do you define timeframes interms of the pivot points and
(29:03):
everything that Howard Capitaldoes?
Speaker 1 (29:04):
Yeah, absolutely so.
The pivot points are usedwithin 20% of our funds, that's
mutual funds and ETFs.
That more works on a shorter tointermediate term basis.
It's not we're not trying toJ-trade here or make thousands
of trades with this, maybe oneor two a month max.
It's going to obviously dependon the volatility of the market
(29:28):
and the action that's going on.
But pivot point's a little bitmore short to intermediate term
use with 20% of the funds.
The other 80% is kind ofdictated by the HCM byline,
which is a longer term trendindicator.
For you guys listening, you knowit's again, it's proprietary
but it's, you know.
Look at the 200 day movingaverage as an example.
(29:49):
That's that's kind of a gaugeon a technical level, a longer
term trend indicator to themarket.
So that's kind of the timeframes we're looking at.
We're not trying to day tradeover here and we're not trying
to again time the market.
I know you kind of mentionedthere the when we get away from
(30:10):
predictions.
I can give your audience someinformation based on things that
I've read personally, but again, it's the cost of what they're
paying for it.
Um, so, um, I'm not trying topredict and um, and I don't
think people necessarily shouldeither.
And that goes back to why youknow hiring an advisor um is
(30:33):
often, you know, often wellworth the cost.
You're better off focusing onyour business, increasing your
income, being around your familyand trying to live this life
for the short period of timethat we're here and not getting
concerned about the day-to-dayactivity with this.
(30:53):
But people like that, they knowwe're doing something about it,
not based on necessarilyday-to-day but, yes, to answer
your question, direct pivot's alittle bit more shorter term.
You know we like to look at kindof weekly charts for that sort
of thing and the byline you knowbeing a little bit longer in
(31:17):
cater.
I like to put it this way,michael, you know, like the
byline, it defines the bigpicture.
The pivot points fine-tune thespecific actions taken within
the strategy.
Think of it your audience canthink of it like a football team
.
The byline is the head coach.
It decides the game plan andwhether the team should focus on
(31:38):
offense or defense.
The pivot points acts more likethe offensive or defensive
coordinator, helping identifyshorter term adjustments and
strategies within the overallgame plan.
So together, you know, webelieve it creates a flexible
yet disciplined approach tomarket participation, trying to
(31:59):
optimize participation whilehaving that discipline risk
buffer in case things get bad.
I also like to mention this thebyline and the pivots are kind
of like a belt and suspenders.
Michael, there are twoprotocols in place to keep your
pants from falling down.
Speaker 2 (32:18):
You're a fan of the analogies.
I love analogies like that andI don't need the image of pants
falling down.
I don't know if the audiencedoes as well, but I think it's a
good way to think about it.
You mentioned sort of thelonger term playbook, of the
longer term playbook.
Talk to me about sort of thelast, maybe major bear market as
far as how our capital managedthrough it.
(32:40):
I mean, I think it'sinstructive because nobody knows
what tomorrow brings.
It could be certainly a bullmarket that continues.
I mean this could just be toyour point, just kind of nothing
, burger, and everyone forgetsabout it in a few months.
But yeah, every bear marketalso starts off with the same
feeling, right?
So any kind of war stories thatyou can even point to around
how our capital is done?
Speaker 1 (33:00):
Jason Richards yeah, absolutely, I mean again.
We can go all the way back toour inception in 1999.
I accepted, obviously, justbefore the dot com bubble, so
that's that great timing there.
But with the help of the byline, our firm was able to
navigate through that prettywell.
2008, we did extremely well.
(33:20):
We were down less than 10%across all our strategies.
Again, through the last decade,our longest running strategy
was up over 100%, compared tothe S&P being up roughly 7%, 8%,
getting to the latest into thisdecade, 2020, we navigated
(33:44):
extremely well.
We reduced exposure.
We were out about 60% to 80% inour strategies and then we got
fully back in the market.
The market bottomed, I believe,on March 23rd.
Our strategies were all fullyback invested by April 14th.
I believe that was around thesame time frame that the
Imperial College over in Londonwas telling us everybody was
going to die and there was a lotof fear.
(34:06):
I could tell just by being onthe phone with advisors, but we
ended up that year up anywherebetween 30 to 50% in our
strategies.
2022 was the worst year HowardCapital's had in our history,
being primarily a tacticalmanager that specializes in
trend analysis when there's noreal trend, like there was in
(34:28):
2022, a manager like us couldstruggle.
But that pivot point system Iwas talking to you about,
michael, the little bit shorterterm tool, was an evolution in
our trading process due to whatwe experienced in 2022.
And our portfolio manager, ceoVince Howard, as competitive as
he is, you know, and as humbleas he is, he knows, you know, he
(34:52):
never wants something like thatto happen again.
That's not what we get hired todo.
And, um, and he's not dogmaticfrom the standpoint of saying,
oh, we've had these greatequations, these algorithms,
going back, you know, 20 years.
Why change anything?
Nope, as markets evolved,michael, so are we.
Um, so the pivot points willallow us to take advantage of
(35:13):
some of those intermediate termrun-ups.
At the same time, when marketsstart to deteriorate, the pivots
can help us exit out about 20%cash within our strategies to
help mitigate these sharpdeclines before they turn into
full-blown sellouts.
Our ETFs also our ETFs used toonly be able to go to cash
(35:35):
equivalents, short-termtreasuries.
That wasn't really helping usin 2022 due to the Fed hiking
rates and we also got whipsaweda couple of times, and that's
going to happen.
And you mentioned the pantsanalogy.
Going back to active tacticalmanagers audience.
I'm not saying that we're goingto outperform the market every
single year.
I'm saying we've got a processin place that removes behavior
(35:59):
from the decision making, whichbehavioral finance shows.
That's the number one reasonsinvestors underperform the
market.
Every active manager is goingto get caught with their pants
down every once in a whilecaught with their pants down
every once in a while.
But the important part is thatwe get back up and we respond
accordingly and we keep movingforward without overblown
(36:20):
changes to our process.
We didn't really change ourprocess.
I would not say that More of anevolution and enhancement.
I think a change differencebetween a change and an
enhancement to me, michael, isan enhancement would be like
let's just say your favoritesteak is medium or filet mignon.
An enhancement would be I addyour favorite steak seasoning to
it Full out.
Change would be, let's say oh,you know, maybe we should go
(36:43):
with a ribeye.
Let's try and cook it mediumthis time.
That's not what we're doing.
So I think, going forward,investors will see favorable
results.
In the first year of the pivotsIn 2024, our ETFs first full
year of the pivots in 2024, ourETFs outperformed.
Lgh outperformed the S&P byabout 250 basis points.
(37:04):
Qqh outperformed the NASDAQ byalmost 10%, so pretty good, and
it allows us to take advantageof a little bit intermediate
term volatility.
I mean that yen carry trade wasactually uh ended up being a
really good trade force uhmemories on that.
Speaker 2 (37:24):
That was a fun day for me as somebody who uh has
been on that kick for some time.
Speaker 1 (37:29):
yeah, that was one market, michael and'll also add
2022, there was nowhere to hide.
Most strategies were down.
There were some managers thatperformed very well.
Kudos to them.
So, overall, we haven't seen amarket like that in 40, 50 years
, not since our portfoliomanager, vance Howard, has
(37:51):
started managing money.
So we've seen something likethat.
We're going to perform betterif something like that occurs
again and that's kind of thebeauty of running a quant
strategy too, michael is that wehave the capability of of
taking the data, taking the datain our strategies and running
it across vast data sets inorder to optimize our, you know,
and validate the effectivenessof our signals and optimize the
(38:12):
parameters if necessary.
So it's still new.
We're still getting better andbetter.
That's always what we'reseeking to do for our clients.
Speaker 2 (38:19):
Let's talk about the kind of education you put out
there, because you know whatyou're doing as a firm is not
typical in the management sideof the industry.
It takes a certain degree ofcommunication and understanding.
Some people might be skeptical,right.
So talk about what you do toget the word out.
Speaker 1 (38:36):
What we do to get the word out.
I mean, it's kind of why I'm onthe podcast with you right now.
But I go back to I don't wantto compete with fundamental
managers.
We seek to complement theirstrategies.
Most advisors and portfoliomanagers.
They use Howard Capital toenhance their existing
allocations rather than makingwholesale changes.
(38:58):
Our strategy seeks to workwithin their existing framework
to help improve client outcomes.
It provides kind of an activetactical risk control mechanism
to navigate these extreme marketconditions when trends dictate
caution.
So again, while we recognizethe importance of fundamentals,
(39:21):
we also believe thatcomplementing a more fundamental
approach with a morequantitative tactical approach
can create a more comprehensiveapproach to investing in a more
full spectrum view of the market.
(39:41):
By balancing shorter termconviction with longer term
flexibility and I've runanalysis with this it makes for
a more adaptive portfolio and amore resilient and less
vulnerable portfolio throughmarket cycles.
So you know not saying we'rethe perfect.
(40:02):
A lot of advisors like to usethis as an arrow in their quiver
and if their clients,especially those nearing or in
retirement, are either concernedone about a 40, 50% drawdown in
their account which couldgreatly affect sequence of
withdrawals, we can help withthat.
We can be a solution therebecause our portfolios can
(40:24):
actually go to cash.
On the other side of thespectrum, a lot of folks are
worried about running out ofmoney in retirement and you know
longevity risk people areliving longer.
Right, I have this.
You know thing that I mentioned, michael.
You know the best thing,michael, for you and your family
is that you live a really longlife, but the worst thing for
(40:44):
your money is that you live areally long life.
So how do we address these twothings?
When it comes to market risksequence of withdrawal risk,
longevity risk Investors need tobe in equities.
It's the only proven vehicle tobe able to outpace inflation and
(41:06):
purchasing power risk, becausecost of living can double for
people in retirement.
If you're too conservative,that often brings up more risk.
I like to define money likethis, michael Money to me is not
currency, at least not in myindustry.
Money to me is purchasing power.
So when purchasing power isgetting eroded, that's risky.
(41:27):
But when it's in somethingthat's providing dividends
that's historically, you know,growing its earnings and far
outpacing inflation, that's notrisky.
So I kind of have it on theopposite spectrum.
I think equities are less riskythan bonds, to be honest with
you.
(41:50):
Eric.
For those who want to trackmore of the firm's thoughts,
learn more about the funds,where would you point them to?
Howardcmcom, howardcmcom.
Howardcmcom.
You can go, or HowardCMFundscom.
Either way, howardcm Funds willjust take you directly to the
Funding ETF website.
If you want to check out ourfirm in general, get some
materials on us, to learn aboutus, you can just go to
HowardCMcom.
(42:11):
You can find everything youneed there and you'll be able to
find our home office number.
Ask for Eric Nyquist.
I'm happy to talk to any of youabout anything that you might
be concerned on or any questionsyou have relating to our firm.
Speaker 2 (42:27):
Appreciate those that watched this episode of Lead
Lag Live, sponsored by HowardCapital.
Again, I'm a fan of the waythat the firm looks at markets,
because I'm a fan of active ingeneral and like everything else
, there are cycles where activeworks, cycles when passive works
, cycles when they don't.
I happen to think that we'reprobably in a good environment
for active on a go-forward basis, but of course I'm a little bit
biased.
Thank you, eric, I appreciateit.
Speaker 1 (42:50):
Of course, Michael have a great.
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Crime Junkie
Does hearing about a true crime case always leave you scouring the internet for the truth behind the story? Dive into your next mystery with Crime Junkie. Every Monday, join your host Ashley Flowers as she unravels all the details of infamous and underreported true crime cases with her best friend Brit Prawat. From cold cases to missing persons and heroes in our community who seek justice, Crime Junkie is your destination for theories and stories you won’t hear anywhere else. Whether you're a seasoned true crime enthusiast or new to the genre, you'll find yourself on the edge of your seat awaiting a new episode every Monday. If you can never get enough true crime... Congratulations, you’ve found your people. Follow to join a community of Crime Junkies! Crime Junkie is presented by audiochuck Media Company.